Question

What is a master budget? How is the master budget prepared and why do companies create it? Do you have a master budget in your personal life? Why or why not?

Answer 1

What is a master budget?

Master budget is known as aggregate budget for an organization. In other words we can say that a budget which includes all subordinates budgets, is known as master budget. Master budget contains all possible aspects of a business entity such as revenues, costs and profits etc. A master budget is comprised of followings sub-budgets;

·        Sales budget

·        Merchandise purchases budget

·        Production budget

·        Manufacturing budget

·        Selling budget

·        General and Administrative expense budget

·        Capital budgets

·        Cash budgets

·        Budgeted Financial Statements etc.

How is the master budget prepared;

Master budget is prepared with the help of followings steps;

1. First of all form a budget committee which will implement and monitor whole budgeting process.

2. Set objectives of the master budget.

3. Timely review of long-term objectives.

4. Identification of primary budget factors for master budget.

5. Prepare sub-budgets for each budget factors such as;

·        Sales budget

·        Merchandise purchases budget

·        Production budget

·        Manufacturing budget

·        Selling budget

·        General and Administrative expense budget

·        Capital budgets

·        Cash budgets etc.

6. Accumulate all sub-budgets into one single budget which is known as master budget.

Why do companies create it?

Companies prepare master budget due to following reasons;

1. It helps in making better co-ordination between various departments of an organization.

2. It will bring more efficiency in budgeting process.

3. It will end conflictions between various budgets of a business entity.

4. It will improve communication between various departments of an organization.

5. It will help in making more focuss on the objectives of the budgeting process due to consolidated budegting process etc.

Do you have a master budget in your personal life? Why or why not?

No, I donot have a master budget in my personal life because in personal life no need of such broad budgeting in compare to a firm’s & company’s budgeting process. As we know that firms & companies have wide range of operations which requires consolidating budgeting process which is known as master budget.

In case of personal life of an individual we find that whole life is involve on revenues and expenditures hence we prepare budget for making balance between incomes and expenditures only that is why we do not prepare master budget in personal life of an individual.